Money Demand, Bank Credit, and Economic Performance in Former Socialist Economies

Manmohan Kumar and Guillermo Calvo

No 1994/003, IMF Working Papers from International Monetary Fund

Abstract: This paper examines factors determining the allocation of bank credit to the enterprise sector, and the implications of this allocation for aggregate supply and macro-economic performance, in the former socialist economies. It first develops a model to explain how changes in demand for money by the household sector directly influence the availability of working capital, which in turn determines aggregate output and employment. It then examines factors influencing the allocation of bank credit between enterprises and other borrowers, in particular the government. Finally, the paper discusses relative merits of bank finance and equity capital in financing medium- and long-term investment, and constraints on the development of efficient equity markets.

Keywords: WP; broad money; insolvent firm; bank credit; enterprise liquidity; liquidity accumulation; gross investment; adverse selection; state enterprise; commercial bank; Credit; Bank credit; Inflation; Demand for money; Commercial banks; Eastern Europe (search for similar items in EconPapers)
Pages: 48
Date: 1994-01-01
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Citations: View citations in EconPapers (16)

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Journal Article: Money Demand, Bank Credit, and Economic Performance in Former Socialist Economies (1994)
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